Every blockchain has a native asset, often called a coin, such as bitcoin on the Bitcoin network or ether on Ethereum, which is built into the protocol itself and typically used to pay transaction fees. A token, by contrast, is created by a separate project using the underlying blockchain's smart contract capabilities rather than being part of the base protocol. An ERC-20 token, for example, is a token built using a common technical standard on Ethereum, and similar standards exist on other blockchains that support smart contracts, each defining how tokens built to that standard behave.
Tokens can represent many different things: a currency-like asset intended for payments, a governance right that lets holders vote on a project's decisions, a claim on a share of a fund or protocol revenue, or access to a particular service or application. Because tokens rely on the underlying blockchain to function, they inherit that network's security and fees but depend entirely on their own contract code for their specific rules and behaviour, which means two tokens on the same blockchain can work in very different ways.
Thousands of tokens exist across various blockchains, with wildly different levels of utility, liquidity and legitimacy. Understanding what a specific token actually does, who controls its contract, and ideally reading its documentation, matters far more than the general label token by itself.
Key takeaways
- A token is built on top of an existing blockchain using smart contracts, unlike a coin, which is a blockchain's own native asset.
- Tokens can represent many things: a currency-like asset, a governance right, a share of a fund, or access to a service.
- Because tokens depend on their own contract code, their utility and legitimacy vary enormously and are worth researching individually.
Token — frequently asked questions
What is the difference between a coin and a token?
A coin is native to its own blockchain, such as bitcoin on Bitcoin, while a token is created on top of an existing blockchain using smart contracts, such as an ERC-20 token on Ethereum. Both can be traded, but they are built differently.
Are all tokens on the same blockchain built to the same standard?
No. A single blockchain can host multiple token standards with different rules and capabilities, so two tokens on the same network are not automatically interchangeable, equally functional, or subject to the same technical limitations.
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